International Affairs Thesis

When You Try Your Best But You Don’t Succeed: Why the United Nations Code of Conduct for Transnational Corporations Failed Despite a Decade of Negotiations

Case Study and Research Question

In 1994, after nearly two decades of drafting, the United Nations Code of Conduct of Transnational Corporations (UNCCTC’s) ultimately fell apart. The United Nations (UN) established a commission on Transnational Corporations (UNCTC) to take up issues of and create conduct codes for transnational corporations (TNC’s) in 1973. The group included 48 members from various regions including Africa (12), Asia (11), Latin America (10), developed economies (10) and socialist countries (5). The code intended to promote the economies of developing countries to ensure that inbound Foreign Direct Investment (FDI) met their economic and social objectives. It emphasized the mutual goals shared by governments and TNC’s- growing, stable economies- and attempted to make TNC’s accountable for the international community given the rise of the free markets exploitative nature. However, negotiations over the draft codes would last twenty years, ultimately resulting with little to show. Disagreements primarily occurred over the enforcement mechanisms of the code. While developing countries desired a legally binding code to increase protection of their economies, developed market economies wanted to maintain their power in the economic order. In the mid 1990s, the UNCTC ultimately disbanded without a resolution. Since then, the spirit of the code has been kept alive by numerous attempts to define and regulate transnational corporations. In 2003, the UN Global Compact emerged as a non-binding pact to encourage sustainable and socially responsible practices by businesses. This was followed in 2011 by the Businesses and Human Rights treaty, which released a ‘zero-draft’ in 2018 attempting to craft a legally binding treaty to restrict the conduct of TNC’s. My thesis questions, why did the decades long negotiations of the United Nations Code of Conduct of Transnational Corporations end without a resolution? This event is worthy of further study given the emergence of subsequent efforts by the UN to regulate transnational corporations. Clearly, the international community is interested in doing so, but faces various roadblocks in implementation. By studying the reasons for the failure of the Code, lessons learned can be applied to the most recent attempt to regulate TNC’s.

Dependent Variable

The dependent variable this case studies is the failure of the UNCCTC’s to formalize a code. The dates 1973 to 1994 will be studied as this marks the birth and death of the code. The outcome from this negotiation remains relatively uncertain throughout the processes, but ultimately ends with the disbanding of the working group. The alternative outcome of the negotiations could have been the successful completion of a code, regardless of the content or binding nature. This thesis will focus only on the creation of the code, not the various other efforts of the UN Committee, which also conducted studies and spread information about the operations of transnational corporations. The lack of a code measures the dependent variable. Generalizing this outcome translates to the failure (or success) of an international committee to create a code of conduct that controls some aspect of the sovereign state. It may also represent the dependent variable of cooperation between developing and developed countries in an increasingly globalized world.

Plausible Answers

The first plausible answer is that countries with developed economies did not want a legally binding agreement to limit the operations of their TNC’s. Developing countries thus took a seat at the negotiation table only to control the outcome, not work towards a compromise with developing countries. The independent variable is the presence of developed countries looking to capitalize on open markets by exploiting foreign economies by way of TNC’s and FDI. The causal mechanisms would be desire of developed nations to maintain power in the neoliberal economic system; this is a national level of analysis. However, it could also contain domestic level forces, such as sectoral interests groups. This answer would be explained with evidence from the representatives of developed nations stating the nature of their interest in the UNCCTC negotiations as limiting the outcomes and the foreign policy and economic decisions made for their nations from 1973-94. I could examine which nations argue for a legally-binding versus voluntary agreement or how power of TNC’s within a state expanded or were restricted during the time period. Evidence which would cast doubt on this explanation would be statements that developed nations were interested in regulation by the UN, or the creation of new laws in states that restrict TNC’s operations.

A second plausible answer is that developing countries ultimately gave up seeking protections from TNC’s following structural adjustment policy and the need for FDI. Globalization began with systematic exploitation of developing economies with the ‘race to the bottom,’ where poor countries began to court FDI by reducing regulation of TNC’s in their borders. The independent variable is the increasing reliance of developing nations on FDI in the 1980s to avoid economic crises. The causal mechanism is the desire of developing nations to receive FDI and develop their economies; these are international and domestic level of analysis. This answer would be explained with evidence that showcased changes in negotiation demands from developing nations, including reduced rigour of the code or its legally binding nature, as well as the rollback of policy that increase TNC rights within states. Evidence that would cast doubt on this theory would be the doubling down or continued resistance of developing countries on regulation of TNC’s and FDI both in the negotiation and within their respective countries.

General Research Question and IR Theory

This case study can be generalized into the research question, under what conditions do international agreements succeed at creating international code to regulate the behavior of transnational corporations?

This research question could belong to the International Relations literature of liberalism. Liberalism assumes institutions and norms can contain and regulate the powers of the self-interested state. The United Nations is an inherently liberal institution and the creation of codes attempts to alter the expectation for and beauvoir that emerge around those codes. It also challenges the notion of the sovereign state by suggesting that states can (and even should) be controlled by international norms. The question could also belong to any domestic level theory given the input of TNC’s in the policy of their home countries. Because of the immense power of interest groups, the UN must regulate activities of corporations since the state has essentially been bought out by financial backers.

Citation

Sagafi-Nejad, Tagi. 2008. Transnational Corporations: From Code of Conduct to Global Compact. Indian University Press: Bloomington & Indianapolis.

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